What you need to know about the Equal Credit Opportunity Act and how it can help you: Why it was passed and what it is

One of our key focuses at the CFPB is our work
helping you “know before you owe,” whether that’s with your mortgage, your car
loan, or the loans you’ll take out to cover college. As part of our work to
empower consumers’ financial decision-making, we also want you to know about
important consumer rights that protect you. One of these is the law that
protects consumers from being discriminated against in the financial
marketplace: the Equal Credit Opportunity Act (ECOA).

In October, we mark the anniversary of this
important civil rights law. To celebrate
the anniversary, we will publish two blogs to help educate you about ECOA.

What
is ECOA?

ECOA is a
federal civil rights law that protects you from being discriminated against by
lenders, based on any of the following reasons:

Race

Color

Religion

National
origin – The country you or your ancestors were born in

Sex
(including gender)

Marital
status

Age
(as long as the applicant is old enough to enter into a contract)

Receiving
money from any public assistance program, such as Social Security Disability
Insurance (SSDI) or the Supplemental Nutrition Assistance Program (SNAP)

Exercising your rights under certain consumer
protection laws

For example, a
lender generally can’t deny loan applications or charge higher costs, like a
higher interest rate or higher fees, for any of the reasons on the above list. ECOA
applies to various types of loans including car loans, credit cards, home loans,
student loans, and small business loans.

Why
it became the law

ECOA was passed at a time when discrimination
against women applying for credit was common. For example, mortgage lenders
often discounted a married woman’s income, especially if she was of
childbearing age. Things weren’t much better for single women, either. Organizations that lobbied for the passage of
ECOA also claimed that mortgage lenders were more likely to deny credit to
single women relative to other applicants.

Congress originally passed ECOA in October of
1974. When it was enacted, ECOA
prohibited lending discrimination based on sex or marital status.

Not long after the original law was passed, in
March of 1976 Congress amended the law to further prohibit lending
discrimination based on race, color, religion, national origin, age, the
receipt of public assistance income, or exercising one’s rights under certain
consumer protection laws.

So,
let’s talk about what this means for you

Here’s
an instance of possible credit discrimination: You apply for a loan and receive
Social Security Disability Insurance (SSDI)—which is a form of public
assistance income—and the lender refuses to lend to you if you do not provide a
note from a doctor about the likely duration of your disability—that may be
illegal.

Who makes sure that lenders obey this
law?

Before the CFPB opened its doors in 2011, the Federal
Reserve Board had the job of writing rules to implement ECOA. These rules are
written to make sure that consumers are protected and that lenders know how to
avoid discrimination in lending. When
the CFPB was created, the job of writing most of those rules was transferred to
us.

Besides writing rules to implement ECOA, at the CFPB we supervise institutions like banks
and lending companies to ensure they are following the
law. We also promote the development of
markets for consumer financial products and services that are fair and
nondiscriminatory.

When appropriate, the Bureau also takes public
enforcement action under ECOA to hold financial institutions accountable for
their actions that violate ECOA. The CFPB shares the job of enforcing ECOA with
other federal agencies, including those listed above, as well as the Department of Justice and the Federal Trade Commission. We all work together to ensure
that institutions are following the law.

Finally,
the voices of consumers remain foundational to the Bureau’s work. If you are having a problem or issue with a
financial service or product you can submit a complaint online or by calling
us toll-free at (855) 411-2372,
where we provide services in more than 180 languages. If you don’t want to submit a complaint,
you can also share your story,
good or bad, about your experience with a financial product or service.

Our next blog in this series will dive deeper
into examples of lender practices that might violate the Equal Credit Opportunity Act. Check back soon to
learn more about what you can do and what we are doing to protect you from
discrimination in the financial marketplace.